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Demystifying Investments: A Guide for Young Singaporean Investors

A successful young investor reviewing her portfolio in Singapore

Demystifying Investments: A Guide for Young Singaporean Investors

Amid the market’s rising interest rate, borrowers might feel the pinch, but it’s a boon for depositors. Many of Singapore’s leading banks now provide tempting fixed deposit rates of up to 3% per annum for periods of 12 months or more. Safe financial tools such as fixed deposits have always appealed to Singapore’s retail investors, even when rates were as low as 1% per annum. The security offered by these financial vehicles allows them to rest easy, confident their cash is protected.

Despite this, the tendency to avoid non-guaranteed investment options, like mutual funds or ETFs, can hamper long-term asset growth.

Before diving in deeper, let’s examine the underlying reasons causing people to hesitate when it comes to investing.

Insufficient Financial Knowledge

In a 2020 survey, only one out of five participants expressed confidence in their understanding of investing, revealing common misunderstandings about the right timing for financial and retirement planning.


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Investment Misunderstandings

Approximately one-third of Singaporeans equate investing with gambling. This perspective is often negatively influenced by friends or family members who have lost money in the stock market.

Absence of Guidance

Individuals who have tried investing independently often discontinue due to a lack of advice or direction during bearish or downturn markets. Consequently, they may behave impulsively, offload their assets during these downturn markets (like the Asian Financial crisis or the United States housing bubble), suffer losses, and conclude that investing isn’t for them.

Influence (or the Absence) from Prior Generations

A significant portion of Singaporeans hails from generations where parents weren’t knowledgeable about investing. Instances abound where the only approach to money management was via savings accounts offering minimal interest rates as low as 0.05% per annum, or even hoarding money in a biscuit tin. This practice could inadvertently get passed on to their offspring, leaving them oblivious to the realm of investing.

In a 2017 survey by Moneysense, it was observed that 90% of residents were aware that higher returns from investment come with higher risks. While the risk involved in investing can’t be disputed, it’s equally crucial to consider the risks associated with not investing.

The wealthiest individuals primarily build their fortune through assets like stocks, real estate, commodities, typically holding minimal cash.

If you’re considering embarking or reembarking on your investment journey,

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Here are three prominent investors and how they go about investing. Remember, there are many ways to invest but ultimately invest in what you are comfortable with, keeping it within budget as well as having a good time horizon for your investment.

1. Peter Lynch

Peter Lynch, who managed the Magellan Fund at Fidelity Investments from 1977 to 1990, achieved an impressive average annual return of 29.2% during his 13-year tenure.

A cursory Google search for “what stock to buy now” will give you countless suggestions for the so-called best stocks to own. However, can these stocks be considered the best if you lack understanding of the businesses behind them?

Peter Lynch once said, “Know what you own, and know why you own it.” During a lecture in 1994, he explained that his substantial returns from owning shares in ‘Dunkin Donuts’ came from understanding the business behind the stock, which helped him stay calm even during recessions.

An intriguing fact is that, according to Fidelity Investments, the average retail investor who invested in the Magellan Fund actually lost money during Lynch’s time there. This strange occurrence can be mainly attributed to investors’ behavioral issues, where they would buy at high prices and sell when the price dropped in a short time frame.

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2. Benjamin Graham

One of Warren Buffett’s mentors, once stated, “The investor’s chief problem and even his worst enemy is likely to be himself.” This quote encapsulates how the biggest challenge in investing often boils down to an investor’s behavior during market volatility. He portrays the stock market as ‘Mr. Market,’ a fictional investor susceptible to erratic mood swings between pessimism and optimism.

Loss aversion, a concept in behavioral finance, explains why investors feel twice as much pain when they lose money compared to the pleasure they feel when gaining the same amount. This bias could cause investors to make irrational decisions, like selling during a down market when valuations are actually more attractive. Naturally, maintaining a level-headed approach when the stock market is tumbling and media outlets are spreading fear and uncertainty is easier said than done.

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3. Terry Smith

Often referred to as the British Warren Buffet, provides straightforward but often overlooked advice to investors: “1. Buy good companies 2. Don’t overpay 3. Do nothing.” Smith, the founder and CEO of Fundsmith, emphasizes this in their investor Owner’s Manual, which boldly asserts, “We aim to run the best fund ever. By best fund, we mean the one with the highest return over the long term, adjusted for risk.” Let’s delve into how the Fundsmith Equity fund has performed over the years.

If you’re a retail investor in Singapore, you might be wondering if you can invest in Fundsmith. The good news is that Fundsmith is readily accessible through Investment-Linked policies (ILPs) for retail investors. Currently, three insurers offer Fundsmith in their ILP plans – Etiqa Life, Tokio Marine, Singlife, FWD Life and HSBC Life.

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It’s essential to decide whether you want to approach investing with caution or courage. An important first step is to evaluate your risk tolerance before determining your portfolio distribution. If you’re seeking a second opinion or want to explore your investment options in Singapore, consider consulting with our certified financial advisors. They are here to guide you through your financial journey.

Investing, though daunting at first, is a crucial aspect of financial growth and independence. It’s important to remember that investing is not about chasing quick profits, but building long-term wealth. Understand your risk profile, make informed decisions, and don’t shy away from seeking professional guidance.

Our licensed financial advisors are ready to support you in crafting a comprehensive financial plan, and to navigate the complexities of the investment landscape. Start your investment journey today and secure a prosperous future. Reach out to us for your financial planning needs.

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